April 05, 2021 - 11:00am EST by
2021 2022
Price: 29.13 EPS 1.57 1.84
Shares Out. (in M): 167 P/E 18.6 15.9
Market Cap (in $M): 4,859 P/FCF 0 0
Net Debt (in $M): -525 EBIT 410 500
TEV (in $M): 4,330 TEV/EBIT 10.5 8.7

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American Eagle Outfitters is fast growing intimates and other specialty apparel company masquerading as a teen retailer. AEO has 2 businesses: the high growth primarily direct to consumer Aerie business and the stable cash generating low growth mall based American Eagle retail banner. AEO currently trades around 6x 2022 EBITDA, a multiple ascribing little value to Aerie despite it being the fastest growing $1 billion concept in retail over the last 3 years. Aerie even grew revenues 25% in 2020! 


AEO’s recent decision to disclose more information on the Aerie business is likely a precursor to a separation of the 2 businesses sometime in the next couple of years. Aerie has become self financing and no longer needs to access the cash flows from the mature AE business to grow.


Meanwhile, the AE business should see a significant revenue and EBITDA rebound in 2021 as the economy reopens and kids return to schools and colleges. AE should see a significant rebound in revenues and EBITDA in 2021 and 2022 off of the pandemic lows of 2020.


If AEO can achieve the 2023 Aerie and AE targets the company outlined at its January investor day for the 2 businesses, on a sum of the parts basis the company would be worth over $50/share, nearly double the current price. At the current share price of AEO, you are buying Aerie for ~13x 2023 EBITDA (a substantial discount to high growth consumer peers) and getting the AE business with its ~$375MM in EBITDA (including all of the unallocated corporate expenses) for “free.”  


American Eagle operates and licenses over 1,300 retail stores worldwide as well as direct to consumer ecommerce websites at and in the U.S. and internationally. AE has been rationalizing its physical store footprint while the Aerie brand continues to add new locations. 




The company states that its “brands are connected under the core tenet of REAL, which is inclusive, optimistic, empowering and celebrates self-expression. Our purpose is to show the world that there's REAL power in the optimism of youth.”


On a consolidated basis, the product drivers are the denim business of the AE brand and the intimates and the athleisure brands sitting under the Aerie brand.